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Trading Psychology

Creating Trading Rule Will Help Control the Emotions of Trading

By | Blog

 

When we discuss the topic of trading rules there are two important topics I can think of that are quite important to most if any, all traders.  We hear it all the time.  But do we, or are we applying it?  It took me a long time to learn this process and still until today if I snap out of it one time, it can blow up a whole month of profits by not following the rules such as:

  • Do not over trade, there are tons of times for trading.  Trading will never go anywhere, but your account will if you are in a hurry to jump on every trade.  Be patient and wait for the one or two good opportunities that have a greater chance of making a move in your direction.
  • Only use Risk Capital, If you can try to treat and handle your Live trades the way you do when you are in SIM, you may see significant difference in our returns.  What I mean is we are more prone to making better trade decisions sometimes when there is no real money on the line.  An example would be of this: Cutting our profits short, and our losses larger, when we sim somehow we do the opposite.  If you are one of these traders, try to keep SIM habits and you may start generating more larger wins.
  • Do not be greedy and many more of this nature, If you are exercising margin, and most of us are, and have 2 lots on a futures contract, consider a 20-30% leverage of profit a really great profit.  In fact you should be happy with even $50 a day at that level.  Stop swinging for the fences on day one.  Slowly scale your account up.

Next we want to know what our strategy is and where it will be located:

  1. Know which markets you are trading, If you are not familiar with a market get to know the correlated market that has intermarket relationship and or ancillary markets.  Sometime you can find a great play a few seconds before anyone else because the opposite market will move before the other, Example the 30 year bonds, vs the E Mini S&P 500.
  2. Know how many markets you are trading at any one give time, this falls in line with not trying to be all over the place.  Be conservative.  If you make one good play a day and take a couple points off the market, imagine doing that with 10 to 20 lots.
  3. Know the time frame for your trading, i.e. Are you day trading or swing trading?  Make sure you do not get margin called by being stuck in the off day hours of trading. In this example I speak about the Futures and Commodities Markets in the United States.  Market hours are 8:30Am to 4:00PM EST.

Once you get this far you should be able to start applying your strategy rules and when and how to get out strategies which is a complete different subject matter, but if you follow rules and detach yourself emotionally from every single trade, you will be surprised to see significant changes in your handling of emotions and in the week end P&L’s.

 

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I wasted a lot of time and money my first year following and believing the wrong organizations on the internet.  I caught myself after spending over $15k in educators to figure this out.  Did I learn some fundamentals of the markets?  Yes, I did.  Was it worth the time and money?  No.  So, I opened Fortetrader to make an affordable shortcut for those interested in learning about the Futures and Commodities markets and do it in a narrowed down version of what is out there in the internet community.  I was not happy with companies that keep selling people the next big indicator, or the next big strategy that they do not even trade themselves or when they did, they do not even show the proof they do. I primarily did this to start building a foundation and a footprint of my own journey, as a student, a day trader, and a lifestyle seeker of time freedom and happiness balance via day trading.  It may be possible that as I progress from today into an institutional style of trading that some of my mentors I have met have directed me to do that I may implement it into a course, however as of today, that is not the plan.  Up until today I have gone from using delayed indicators, to price action, and further pursuing styles such as order flows, volume profile and market profile and theory.  Until then do not drop thousands on any kind of online school.  Take it from me it is not worth it.

Can you find a lot of things out on YouTube?  Of course, you can.  I can learn how to fix appliances in my house and save a ton of money on calling a service technician.  Some martial artists are known to have learned and executed some of their most explosive secret moves on the mats because of YouTube.  But when you try to learn something like the markets, something so robust, with so many different styles and methods and instruments, then is when you enter a maze.  A big puzzle.  And it is hard to get out of it.  You need screen time, or martial artists would call it, mat time.  Same thing.  Need to get the fundamentals then dive into the practice of the flow.

I charge $37 for an intro course that will introduce to you downloading and setting up your demo platform account with our preferred vendor, setting up charts, saving workspaces, and setting up strategies for specific markets.  You can check out the course details here.  May not be the perfect thing in the world but it is much better to deal with someone that has the time to pick up the phone and acknowledge you and your passions, and gets you to the next level in your journey, as you may discover your advanced strategies elsewhere.  I am just preparing you to not waste money on some of those guys, “can’t say their names” that charge and then upsell you to tens of thousands.  I have spoken to most of them and they are a bunch of outlying jokers.

Learn a base plan and then dig in and learn most of what you need to on your own.  Our fee helps cover our overhead on server bandwidth, maintenance, and security.  That is why I charge so little.  And while I can I will do my best to be in touch with all your questions and inquiries.  You need screen time, or martial artists would call it, mat time.  Same thing.  Need to get the fundamentals then dive into the practice of the flow.

RISK DISCLOSURE:
Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

HYPOTHETICAL PERFORMANCE DISCLAIMER:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES LIKE THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.

risk management is key to day trading

Risk management is key to day-trading

By | Blog

November 14, 2007 • Reprints

Shared by Foretrader Futures Trading Team

RISK CONTROL TECHNIQUES

There are several ways you can manage risk. First, know your personal risk tolerance. You must have a good idea of the maximum exposure that you are willing to take. Likewise, to apply that self-knowledge, you’ll need to calculate the risk of a trade before you take it. Determine the maximum amount of money that could be lost on the trade and honestly ask yourself if you are willing to accept it. If so, consider the trade; if not, walk away.

One great characteristic of the financial markets is there is always another trade. In a few hours or days, there will be another chance to make a trade that better fits your particular risk parameters. Be patient and wait for it.

A day trader, of course, generally makes a lot of trades. Therefore, day traders must manage every trade carefully. That means always using a protective stop and knowing when a loser will be liquidated. It’s not a bad idea, for purposes of risk management, to live by the cardinal rule to never trade without a stop. Bottom line, when you assume a position, place a stop loss.

Before making the trade, identify the point at which the market will make clear that the trade is wrong. For example, if buying an S&P contract at 1472.00 and the charts suggest that support should step in at 1469.00; place a protective stop at 1468.50. The reason is simple: If that stop is hit, the market has demonstrated loud and clear that the original analysis was wrong. Take the small loss and gracefully go to the sidelines. Another opportunity will come along soon enough—and maybe immediately in the opposite direction of your original trade (see: “When to say quit,” below).

Not only do you want to know your risk tolerance, but you also want to know what to expect from your trading style. For example, if you do a lot of momentum trading, that is, you look for market opportunities when market momentum will move prices quickly up or down for a short distance, you should expect to be paid quickly. Intraday momentum trades might require profits in a few minutes if they are valid. If they aren’t showing any, check your indicators and reanalyze. If there’s no clear reason to continue the trade, exit and wait.

Do not over trade. The biggest weakness of most traders is a lack of patience. They sit in front of their computer screens waiting to trade. Because they have planned to trade, they do so. They are not discriminating enough, jumping in and out of the market continuously.

Remember, every time a trade is made, a risk is assumed. Therefore, one of the easiest ways to reduce risk is not to over trade. Have a workable and tested strategy. Know the market setup that supports that strategy and be patient. Chances are, if you are making more than five or six trades a day, then you are over trading. Take only those trades that look really good, those that meet all of the parameters of your strategy. Otherwise, the bad trades will deplete all of the money you made on your good trades.

To help end over trading, adopt this simple rule: Three strikes and you’re out. If you make three bad trades in a row, even if you manage the trades well and suffer only a small loss, close your trading platform and walk away. Something is wrong. You are off your game. Either the market is tricky and not following the rules, or some other problem exists. At any rate, do not trade in a market that is taking your money.

SELF PRESERVATION

There’s some truth to the cliché that if you take care of the downside, the upside will take care of itself. Along those lines, always focus on preserving capital. While an all-or-nothing strategy might pay off big from time to time, it will not last in the long run. That is, if you make a trade and hold your positions until the maximum profit target is hit, you will do extremely well sometimes, but end up with nothing most times.

Instead, scale in and out of some contracts or positions at various profit levels. This approach is known as the 3Ts of Trading. In simple terms, it describes trading in multiples of three. When you enter a trade, know your profit targets and enter your orders to liquidate some positions at those targets.

A good first target would be only a few ticks from entry. Take, say, one-third or so of the position off the table. If the trade continues to work, exit another portion when the second profit target is reached. At this point, assume you have made enough money to cover the downside of the remaining positions. You are then free to either liquidate the last portion of the trade with the profits made, or you can place a protective stop at a breakeven point and let the balance ride (see “The 3Ts,” below).

Trading is not easy. It demands good analysis, good execution and good risk management. Those who succeed in the game are those who manage every trade and continuously respect risk.

BALANCING FEAR AND GREED

Psychology plays a huge role in trading. Many traders understand how to trade and could be highly profitable, but they continuously shoot themselves in the foot by being emotionally unbalanced. Regardless of your self-control, as a trader, there are two big emotions that you know all too well: fear and greed. These two forces impair analysis and keep traders from doing their best.

Greed leads to seeing money in every setup. Greedy traders trade too often and take far too many risks. Even when winning trades are made, these traders often end up losing money because they do not take reasonable profits. They want huge profits. Therefore, they keep holding positions until the market shifts and a winner becomes a loser.

The primal human emotion of greed is just one reason you should consider forcing yourself to take profits at various pre-planned levels. It keeps greed in check. It allows for a portion of the position to ride for maximum profits while taking smaller profits along the way to reduce risk and put money in the bank.

Fear has the opposite effect of greed. Traders make too few trades. They see the setup, they know it meets their criteria and is in line with their strategy, but they fear losing. Fear keeps them from making the trade and from making money.

Another aspect of fear is that it leads traders to exit winners too quickly. If one indicator goes against them, they bail. It is good to get out of losers quickly, but give yourself time to analyze what is happening. Risk management works both ways. A trader needs to get out when his risk limits are hit and needs to give each trade a chance to hit its profit target in the prescribed timeframe. A trader who is too fearful will never take risks and he will never make money. Winning traders put the odds on their side. They do their analysis, have a strategy and execute it as planned. They understand when the odds shift and are no longer in their favor and that is the time to exit the position.

Again, one of the best techniques for balancing fear and greed is the 3Ts approach. Trade in multiples of three and take profits at various profit levels. The first profit target will be just a few ticks from entry. The second profit target could be generally a point or so higher. Finally, the final portion of the trade is either liquidated with a

little more profit or it is left in the market to follow the daily trend and maximize profits.

The 3Ts approach concedes to fear and quickly reduces risk while pocketing some cash. But it also gives greed its due. Once you have exited the first two portions of the trade, the final portion is allowed to ride and take all it can out of the day’s market trend. This risk management technique allows you to maximize profits while also reducing risk. It helps create that delicate balance of fear and greed.

Join us and we will show you how you can use some simple risk management rules on your futures trading to generate and scale your account and be consistent.

RISK DISCLOSURE:
Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

HYPOTHETICAL PERFORMANCE DISCLAIMER:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES LIKE THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.

best countries for day traders to live

Best Countries for Day Traders to Live, Tax Advantages

By | Blog

Credit to this Blog is to Henry Kanapi, and Fortunehub.net,

 

Best Countries for Day Traders to Live

Day traders are not limited by location. As long as they have a computer with a reliable net connection, they can conduct their business anywhere in the world. With this unique advantage, they seek location independence that offers low to zero income taxes, relaxed visa laws, inexpensive cost of living, and high quality of life. In this article, we put together a list of the best countries for day traders to live in based on the factors mentioned.  We actually show you how to achieve this goal here with our Futures Trading Course.

9. Bahamas

This exotic Carribean Island makes the list largely due to its zero personal income tax policy. Quality of life is also awesome with its pristine beaches, unique cuisine, and friendly population. Furthermore, the country’s reliance on tourism makes it easy for foreigners to acquire visa.

However, cost of living is off the charts. Expatistan gives Nassau, Bahamas 242 out of 280 in its cost of living index.

8. Dubai

At number 8, Dubai is much like the Bahamas: no income taxes are imposed, high quality of living, and relaxed visa laws for qualified foreigners. However, the cost of living index is lower at 208 according to Expatistan.

The only downside for foreigners is government restriction on online activity. Nevertheless, Dubai is still one of the best countries for day traders to live in.

7. Spain

Some of the most expensive cities to live in are in Europe. Spain seems to defy this trend. Although the quality of life is comparable to other expensive European cities, Expatistan reports Madrid’s cost of living index at 149. Moreover, access to visa is easy.

The only reason why Spain is not further up the list is its income tax rate of 24 percent. If you don’t mind paying the government over a fifth of your income, Spain can be your sanctuary as a day trader.

6. USA (Miami, Florida)

If you’re an American, you don’t need to leave the country to enjoy similar benefits. Just head south. With a quality of life that surpasses many countries and reasonable cost of living (130), Florida comfortably occupies the 6th spot in our list. More important, the state does not impose personal income taxes.

Foreigners, however, may not experience these benefits considering strict visa laws implemented by the U.S.

5. Russia

Who would have thought that Europe’s most intimidating country can be a haven for day traders? According to Trading Economics, income tax in Russia has been steady at 13 percent since 2006. When compared to other countries in Europe, cities like St. Petersburg (cost of living index at 103) are relatively cheap with a high standard of living. Furthermore, visa access is easy for qualified foreigners.

4. Panama

A combination of cheap cost of living (153) and high quality of life make the Central American country the world’s number one retirement destination.  If you add the fact that no taxes are imposed on foreign income, you can easily understand why Panama sits number four on our list.

In Panama, you can explore many tourist attractions without breaking the bank. You can live the retiree’s lifestyle while earning as a day trader.

3. Philippines

Although the Philippine capital ranks 136th in the recent Global Quality of Life survey, foreigners love staying in the South East Asian archipelago because of relaxed immigration laws, low foreign income taxes, favorable foreign exchange rate (45 Php = 1 USD), and cheap cost of living (112). In addition, communication barrier is not an issue as Filipinos are excellent English speakers.

2. Thailand

Will you move to a country with no capital gains and foreign income tax, inexpensive cost of living (116), and easy visa requirements? Welcome to Thailand where foreigners can enjoy these benefits and more. The reason why the country is not at the top of the list is its quality of life which is not far from what the Philippines can offer.

1. Costa Rica

Costa Rica do not impose taxes on income earned abroad. Cost of living (130) is inexpensive, too. The best part is the country’s superior quality of life. As cited in Business Insider, a survey conducted by the New Economics Foundation in 2012 reveals Costa Rica as the happiest place on Earth.  As an added bonus, visa laws are relaxed. As a matter of fact, you can stay for up to 90 days in the country without a visa depending on your nationality.

With these benefits, it’s only right that we give the first place award to Costa Rica in our list of best countries for day traders to live in.

Visit our traders course page and see what we can do to help.

RISK DISCLOSURE:
Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

HYPOTHETICAL PERFORMANCE DISCLAIMER:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES LIKE THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.